Hydroponics and organics expected blossom in a thriving agricultural sector

Hydroponics and organics expected blossom in a thriving agricultural sector

Hydroponics, organic farming and recently secured free trade agreements are expected to deliver increased revenue for agriculture over the next five years, according to IBISWorld Australia General Manager Mr Dan Ruthven.

Currently generating revenue of $67.3 billion across a host of agricultural categories, the sector is tipped to grow by 5.7 per cent from 2014 to 2019 to reach total revenue of $71.1 billion.

“Australia is very well placed to take advantage of our highly productive soils, efficient farming practices and geographic position on the doorstep of Asia,” Mr Ruthven said. “IBISWorld anticipates that growth in Australian hydroponics, organic farming and recent free trade agreements will see more Australian produce being exported,” he said.

Hydroponics

In the face of anticipated ongoing domestic water shortages and the likelihood of more droughts, IBISWorld said it expected more time and capital would be invested in hydroponic farming, given the potential for significant water savings and greater efficiencies in growing fruit and vegetables.

“By 2019, hydroponics will likely be generating more than $1.1 billion for the Australian economy, up 23.1 per cent from 2014,” Mr Ruthven said. “The complete control of environmental variables, which largely negates the impact of floods, droughts, adverse weather conditions and natural disasters, will not only reduce labour costs, but also offer greater security in the supply of vegetables, flowers and fruit,” he said.

IBISWorld said the anticipated growth in hydroponics was largely attributable to more stable output volumes, a greater focus on quality control and the production of premium products. Due to the perishable nature of hydroponically grown produce, however, trade in the industry is currently low. According to IBISWorld, advances in refrigeration, enhanced transportation and storage are expected to result in future increases in exports of hydroponically grown food.

Organic farming

Organic farming is blossoming and has been one of the economy’s best performing agricultural industries over the past five years, according to IBISWorld. It said global demand for organic produce continued to rise because of increasing health consciousness, growing concern for the environment, steady income growth and the increased convenience of organic food.

“Organic agriculture is forecast to record outstanding growth of 11.2 per cent in 2014 to $655.3 million and 49.6 per cent over the next five years,” Mr Ruthven said.

IBISWorld said Australia had the largest amount of organic farmland in the world, at an estimated 12 million hectares. The majority of this land is large rangelands used for organic cattle production. However, IBISWorld said the industry was mainly comprised of small operators, which had contributed to difficulties in providing consistency in the quantity and quality of produce. Despite some consolidation of operators over the past five years, IBISWorld said the industry remained “highly fragmented” and that organic farming techniques were still “not as efficient as conventional farming’.

Beef cattle farming

IBISWorld said it expected beef cattle farming would perform well in 2014, with revenue growing 3.3 per cent to $5.5 billion. This healthy growth is expected to continue over the next five years, with revenue forecast to reach $6.3 billion by 2019.

“Demand for Australian beef is expected to remain strong both at home and abroad, despite increased health consciousness favouring white meat and fish,” Mr Ruthven said.

Rising meat consumption and higher beef prices are expected to boost domestic demand, according to IBISWorld. Price rises would be driven by the increased popularity of higher value beef products, such as organic and Wagyu beef. The volume of live cattle exports is expected to increase due to growing demand in Asian and Middle Eastern markets and depreciation in the Australian dollar from historically high levels.

Grain growing

IBISWorld said grain producers could expect revenue growth of 9.5 per cent over the five years through 2019, to more than $14 billion.

“The grain producing industry has been affected by high levels of volatility over the past five years, marked by inclement weather conditions that have dampened output,” Mr Ruthven said. “Revenue volatility has been exacerbated by tumultuous global grain prices and global crop supply. More favourable weather conditions and planting conditions are projected to buttress production output and increased revenue will follow,” he said.

Free trade agreements

Australian agricultural exports are worth more than $38 billion to the Australian economy annually, according to IBISWorld. As Asia’s population continues to grow, IBISWorld said it anticipated Australian farmers would export more food as the nation cemented itself as “the breadbasket of the region”.

“Beef is expected to be one of the biggest beneficiaries of the recent free trade agreements reached with Japan and Korea, as quotas and tariffs are either significantly reduced or eliminated altogether,” Mr Ruthven said.

Currently, $641 million of Australian beef and veal and $77 million of dairy products are exported to Korea. Australian beef was the largest imported agricultural product in Japan in 2013, valued at $1.4 billion.

Support for agriculture

Excluding drought assistance, IBISWorld said Australian farm subsidies were the second lowest in the OECD in 2013, at just 2.7 per cent of farm revenue, down from 4.8 per cent in 2007. Farm subsidies have been declining in Australia but are expected to remain at the current level over the next five years. IBISWorld said that since subsidies were at a low level in Australia they had a small effect on agricultural profitability, but if foreign governments lowered their subsidies, Australian farmers would reap the benefits through higher food prices.

“Only our cousins in New Zealand beat us in having lower agricultural subsidies at 0.8 percent,” Mr Ruthven said. “The European Union, through its Common Agricultural Policy, supports its farmers to the tune of 19 per cent, while American farmers receive 7.1 per cent of their income from subsidies,” he said.